V3.103 Meaning of 'consideration'

V3.103 Meaning of 'consideration'

Introduction

In principle, a supply is outside the scope of VAT unless it is made for a consideration1. The term 'consideration' is used in Directive 2006/112/EC, art 732 to determine the taxable amount (ie the value of the supply3). In interpreting the Directive, it is important to take account of decisions of the ECJ. The following general principles are derived from the cases decided by that court4:

  1.  

    •     interpretation of the term 'consideration' cannot be left to the discretion of each member state

  2.  

    •     there must be a direct link between goods supplied or services provided and the consideration received

  3.  

    •     there must be a legal relationship between the supplier and recipient pursuant to which there is reciprocal performance, the remuneration received by the supplier constituting the value actually given in return for the supply

  4.  

    •     consideration must be capable of being expressed in money

  5.  

    •     consideration is a 'subjective value', and

  6.  

    •     there must be a reasonable correlation between the value of the consideration and the value of the goods or services. This test was applied in Supanet5, where the tribunal considered that any revenue derived from the appellant's share of telephone charges arising from subscribers entering a competition on the internet was too far removed from the actual cost of the prizes. This decision was, however, subsidiary to the primary one where the tribunal held that the share of the telephone charges obtained from telephone companies could not be regarded as consideration paid by

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